Change to Swiss Franc Labeled Watch Brands' Biggest Challenge

Change to Swiss Franc Labeled Watch Brands' Biggest Challenge

Article excerpt

One executive says recent currency changes pale in comparison
with January decision.

When Chinese policy makers devalued the renminbi last month, the
subsequent ripples through global markets were just the latest in a
long line of currency shocks to rock the Swiss luxury watch industry
this year.

Yet even as investors quickly dumped shares in European luxury
goods players with sizable exposure to the Chinese consumer market,
including LVMH Moet Hennessy Louis Vuitton and Richemont, and as
fresh fears of further slowdowns in luxury sales rose, at least one
of the coterie's high-end watchmakers voiced confidence in the
future.

"The devaluation of the yuan is just a wave in the ocean compared
to the tsunami that hit us in January after the dissolution of the
franc cap," said Jean-Claude Biver, chief executive of TAG Heuer and
head of LVMH's watch division, which includes his brand as well as
Hublot and Zenith. "That knocked us into real crisis."

He referred to the Swiss central bank's unexpected decision to
scrap an artificial cap that kept the Swiss franc pegged to the euro
-- which dropped it from 1.20 francs to the euro on Jan. 14 to 0.85
franc the following day. By late August, the currency was at 1.08
francs to the euro.

"It is still too early to tell exactly what will happen, but the
reality is, our industry has coped with much more than this over the
years, and we will do so again," Mr. Biver continued. "For now, I
believe we have gone through the worst of the worst and have entered
a period of consolidation and stability."

Mr. Biver's optimism should be welcomed by contemporaries in the
Swiss watch industry weary of the prospect of more obstacles to
growth. The change in the franc increased their production costs and
created large pricing variations across sales regions. Most Swiss
watchmakers had to offset the mismatch between their costs and
revenue bases by either increasing or slashing prices, or by
accepting a new and uncomfortable era of lower margins.

For example, Patek Philippe decreased its prices in February 7
percent in North and South America, 5 percent in Switzerland, 7
percent in Hong Kong and 3 percent in the rest of Asia and the
Pacific, while increasing its prices 7 percent in the eurozone and 5
percent in Japan.

And Richemont, the world's second largest luxury goods company by
market capitalization and owner of watch brands such as IWC
Schaffhausen and Piaget, reported a 35 percent decline in net
income in May because of losses on hedging contracts it had bought
to cope with currency fluctuations.

"We've got to get on with life," the Richemont chairman, Johann
Rupert, said after reporting the tumble, adding that moving
production out of Switzerland was not an option.

As for exchange rate volatility, "we survived it before and I
think we'll survive it again," he continued. …

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